The Foundational 15

The Foundational 15 [The following information applies to the questions displayed below.] Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Average Cost Direct materials Per Unit Direct labor $ 5.10 Variable manufacturing overhead $ 2.60 $ 1.60 Fixed manufacturing $ 4.00 overhead $ 2.10 Fixed selling expense $ 2.10 Fixed administrative expense $ 1.10 Sales commissions $ 0.55 Variable administrative expense Foundational 1-1 Required: 1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units? (Do not round intermediate calculations.) Total $133,000selected answer correct product cost Explanation 1. Direct materials $ 5.10 Direct labor 2.60 Variable manufacturing overhead 1.60 Variable manufacturing cost per unit $ 9.30 Variable manufacturing cost per unit (a) $ 9.30 Number of units produced (b) 10,00 0 Total variable manufacturing cost (a) x (b) $93,000 Average fixed manufacturing overhead per unit (c) $ 4.00 Number of units produced (d) 10,00 0 Total fixed manufacturing cost (c) x (d) 40,000 133,00 Total product (manufacturing) cost $ 0 2. For financial accounting purposes, what is the total amount of period costs incurred to sell 10,000 units? (Do not round intermediate calculations.) Total period cost $58,500selected answer correct Explanation 2. Sales commissions $ 1.10 Variable administrative expense 0.55 Variable selling and administrative per unit $ 1.65 Variable selling and admin. per unit (a) $ 1.65 Number of units sold (b) 10,00 0 Total variable selling and admin. expense (a) x (b) Average fixed selling and administrative expense per unit ($2.10 fixed selling + $2.10 fixed admin.) (c) $ 4.20 Number of units sold (d) 10,00 0 Total fixed selling and administrative expense (c) x (d) Total period (nonmanufacturing) cost Number of units used to calculate fixed cost per unit (b) 10,00 0 Total fixed manufacturing cost (a) x (b) 40,00 $ 0 Variable overhead per unit (a) $ 1.60 Number of units produced (b) 12,00 0 Total variable overhead cost (a) x (b) 19,20 $ 0 Total fixed overhead 40,00 0 Total indirect manufacturing cost 59,20 $ 0 15. What incremental manufacturing cost will Martinez incur if it increases production from 10,000 to 10,001 units? (Round your answer to 2 decimal places.) Incremental cost per unit produced $9.30selected answer correct Explanation 15. 5.1 Direct materials per unit $ 0 Direct labor per unit 2.6 Variable manufacturing overhead per unit 0 1.6 0 Incremental cost per unit produced 9.3 $ 0 Wollogong Group Ltd. of New South Wales, Australia, acquired its factory building 10 years ago. For several years, the company has rented out a small annex attached to the rear of the building for $30,000 per year. The renter's lease will expire soon, and rather than renewing the lease, the company has decided to use the annex to manufacture a new product. Direct materials cost for the new product will total $80 per unit. To have a place to store its finished goods, the company will rent a small warehouse for $500 per month. In addition, the company must rent equipment for $4,000 per month to produce the new product. Direct laborers will be hired and paid $60 per unit to manufacture the new product. As in prior years, the space in the annex will continue to be depreciated at $8,000 per year. The annual advertising cost for the new product will be $50,000. A supervisor will be hired and paid $3,500 per month to oversee production. Electricity for operating machines will be $1.20 per unit. The cost of shipping the new product to customers will be $9 per unit To provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are presently yielding a return of $3,000 per year. Required: Using the table shown below, describe each of the costs associated with the new product decision in four ways. In terms of cost classifications for predicting cost behavior (column 2), indicate whether the cost is fixed or variable. With respect to cost classifications for manufacturers (column 3), if the item is a manufacturing cost, indicate whether it is direct materials, direct labor, or manufacturing overhead. If it is a nonmanufacturing cost, then select "none" as your answer. With respect to cost classifications for preparing financial statements (column 4), indicate whether the item is a product cost or period cost. Finally, in terms of cost classifications for decision making (column 5), identify any items that are sunk costs or opportunity costs. If you identify an item as an opportunity cost, then select "none" as your answer in columns 2-4. Cost Classifications for: Name of the Cost Predicting Cost Hehavior Manufacturers Preparing Financial Statements Decision Making Rental revenue forgone, $30,000 per year Noneselected answer correct Noneselected answer correct Noneselected answer correct. Opportunity costselected answer correct Direct materials cost, $80 per unit Variableselected answer correct Direct materialsselected answer correct Productselected answer correct not attempted Rental cost of warehouse, $500 per month Fixedselected answer correct Noneselected answer correct Periodselected answer correct not attempted Rental cost of equipment, $4,000 per month Fixedselected answer correct Manufacturing overheadselected answer correct Productselected answer correct not attempted Direct labor cost, $60 per unit Variableselected answer correct Direct laborselected answer correct Productselected answer correct not attempted